China’s stocks rose, with the
Shanghai Composite Index leading Asian equity markets higher, as
investors speculated recent losses were excessive. Agricultural
Bank of China Ltd. is preparing to sell shares in what may be
the world’s biggest initial public offering.

Equities are trading at their lowest levels relative to
earnings in 18 months after the Shanghai index slumped 26
percent this year on concern government efforts to curb
inflation and property speculation will slow the economy. The
rebound is a boost for Agricultural Bank, which is seeking $20.1
billion selling stock in Shanghai and Hong Kong and may price
its shares today.

“Stocks have dropped to a level where valuations are
attractive to bargain hunters, who expect the government to ease
tightening policies to counter an economic slowdown,” said Dai Ming, a fund manager at Shanghai Kingsun Investment Management &
Consulting Co. “We estimate that the IPO price of Agricultural
Bank will be at about a 10 percent discount to prices of listed
big banks. That’ll leave room for a possible first-day gain.”

The Shanghai Composite, the bigger of China’s two exchanges,
advanced 45.48 to close at 2,409.42, the most since June 21. The
CSI 300 Index added 2 percent to 2,562.90. The measure tracks
yuan-denominated stocks, known as A shares, in Shanghai and
Shenzhen.

Stock Valuations

Declines have sent the CSI 300’s valuation to 14 times this
year’s earnings, down from a high of 22 times in January,
according to data tracked by Bloomberg.

The price-earnings multiple for A shares is 1.2 standard
deviation below the 10-year average, while the two-year compound
earnings growth rate is “among the highest in history,”
according to UBS AG.

Earnings Forecasts

Around 54 percent of A share companies’ first-half guidance
indicate year-on-year net income growth of more than 50 percent,
UBS’s Hong Kong-based strategist John Tang wrote in a report
today.

Stocks have slumped this year as authorities intensified a
crackdown on property speculation after announcing the economy
expanded at an 11.9 percent annual pace in the first quarter,
the most since 2007.

Kenneth Rogoff, the Harvard University professor, said
China’s property market is beginning a “collapse” that will
hit the nation’s banking system.

As China’s economy develops, “especially at the speed it’s
growing, it’s going to have bumps,” Rogoff, former chief
economist of the International Monetary Fund, said in an
interview with Bloomberg Television in Hong Kong.

Aluminum Corp. of China, the nation’s biggest maker of the
lightweight metal and also called Chalco, added 1.8 percent to
8.74 yuan. The company said it extended the deadline for a
planned private placement of A shares by a year. Chalco said
April 15 that it won regulatory approval to sell as many as 1
billion A shares.

Agricultural Bank

“The current market conditions are not favorable for the
share sale and the company will seek bank loans,” Shen Hui, a
spokeswoman, said by phone from Beijing today.

Equity market declines aren’t stopping Agricultural Bank
for pushing ahead with its listing. Chairman Xiang Junbo is
taking his bank public after almost 50 companies worldwide
shelved IPOs in the past three months amid concern that the end
of government stimulus and widening budget gaps from Greece to
Spain will curb the global economic recovery, data compiled by
Bloomberg show.

Beijing-based Agricultural Bank expects to set a final IPO
price tomorrow. The company is selling 22.2 billion shares in
Shanghai at 2.52 yuan to 2.68 yuan each, implying a price-to-
book ratio of 1.56 to 1.65 times for that tranche, according to
Hong Yuan Securities Co.

Pricing Details

The bank is offering 25.4 billion shares in Hong Kong at
HK$2.88 to HK$3.48 apiece, representing 1.55 to 1.79 times 2010
book value as estimated by the IPO’s underwriters.

China’s biggest banks announced as much as $54.5 billion in
fundraising after extending record loans last year.

An index tracking Chinese health-care stocks jumped 3.2
percent, the biggest gain since May 24 and the most among the 10
industry groups on the CSI 300. The health-care index is the
worst performer in the past month, falling 17 percent.

The 14-day relative strength measure for the Shanghai
Composite, measuring how rapidly prices have advanced or dropped
during a specified time period, was at 26.8 yesterday. Readings
below 30 indicate it may be poised to rise.

Credit Suisse Group AG said Chinese stocks will be “range-
bound” because a shift to increased reliance on consumption to
drive the nation’s economic growth will benefit companies that
have a “very marginal index weighting,” according to a report
by analysts Vincent Chan and Peggy Chan.

Western Spending

Sichuan Road & Bridge Co. rose by the 10 percent daily
limit to 8.12 yuan after the nation’s top economic planning
agency said 682 billion yuan ($101 billion) will be invested in
the western region this year. Sichuan Expressway Co. gained 2.6
percent to 6.69 yuan.

Chongqing Brewery Co. rose 2.8 percent to 33.77 yuan. The
company said its shareholders approved plans for its parent to
sell a 12.25 percent stake to Carlsberg A/S, making it the
biggest shareholder.

The following companies were among the most active in
China’s markets. Stock symbols are in brackets after companies’
names.

CSG Holding Co. (000012 CH), a Chinese glassmaker, surged
by the 10 percent daily to 9.76 yuan after forecasting first-
half profit surged by between 137 percent and 149 percent from a
year earlier.

Nanzhi Co. (600163 CH), a paper manufacturer, added 2.2
percent to 4.19 yuan. The company expects to make a profit in
the first half instead of the loss it had predicted earlier in
its first quarter report.